Chafee Proposes Lower Corporate Tax Rate

Perhaps the crowning achievement of his fiscal year 2014 budget, Governor Lincoln Chafee announced at last night’s State of the State address that, under his plan, Rhode Island would lower its corporate tax rate from nine percent to seven percent over the course of the next three years.

It’s a move that is expected to improve Rhode Island’s standing nationally from 43rd overall to 26th but, potentially more important, it would allow the Ocean State to fare better when compared to its New England neighbors as it would have the lowest corporate tax rate in the region.

Chafee’s proposal would front-load the bulk of the change as a one-percent decrease would automatically kick in for FY2014, making the rate eight percent, before gradually declining to 7.5 percent in 2015 and seven percent overall in 2016 and beyond.

The decision was widely heralded by many in attendance in the General Assembly and local business and economic experts.

“This rate has very little effect on small businesses and sole proprietors which make up over 90 percent of the businesses in Rhode Island,” said Edward M. Mazze, a professor of business administration at the University of Rhode Island. “Yet, it is still a good idea since it tells the world Rhode Island is open for business.”

“I also liked the proposed change to the corporate tax rate, even though this is not necessarily the best way incentivize business expansion because it focuses only on the rate and not on deductions,” said University of Rhode Island economist Dr. Leonard Lardaro. “It should, nonetheless, improve our national rankings.”

Under Chafee’s plan, the revenue lost by the shift to seven percent would be made up by eliminating the enterprise zone tax credit at a cost of $300K and by phasing down the value of the Jobs Development Act rate reduction by 25 percent in the 2014 tax year and by 50 percent after that. That should save approximately $2.4 million.

Some wonder if Chafee’s proposal goes far enough.

“The Governor is exactly right in his assessment that the corporate tax rate must be lowered to promote corporate activity,” said Rhode Island's GOP Chairman Mark Zaccaria. “In fact, doing so will increase overall state revenues.

So why wait three years? And why only go down two points?”

By and large, however, most supported the move and the positive impact it is expected to have on the standing’s business standing nationally.

“I think it’s important that we definitely look at the corporate taxes,” said House Finance Committee Chairman Helio Melo. “That’s something that we need to focus on. How we get there, we might have different ways but at the end of the day I feel that the results will still be the same and I think the governor’s numbers are very realistic and they can be attained.”